Why Bank of America Corp May Be The Biggest Winner of All the Mergers and Acquisitions

While there has been ample news surrounding the jump in mergers and acquisitions, Bank of America may be the biggest winner -- ahead of Citigroup and Goldman Sachs -- of all the companies involved.

Jun 8, 2014 at 11:02AM

2014 has been characterized by unceasing news of mergers and acquisitions. But the biggest winner in all of these will surprise you.

Staggering growth
Seemingly every week this year there has been news about the possibility of a nearly $50 billion buyout across nearly every industry. There's the almost $54 billion effort of Valeant Pharmaceuticals to takeover Allergan, the maker of Botox.  There's also the two major consolidation efforts in the television and entertainment industry, including the $48.5 billion merger of AT&T and DirecTV plus the $45 billion merger effort between Comcast and Time Warner .

This is to say nothing of Facebook, Google, Apple, and countless other firms who have all bought shiny new things.


And while there will undoubtedly be winners and losers from the companies bought and sold, it turns out Bank of America (NYSE:BAC) may not only top the companies buying and selling, but also banks like Goldman Sachs (NYSE:GS), Citigroup (NYSE:C) as biggest winner of them all.

The truth of the spree
Almost every deal requires a variety of investment banks that charge fees to ensure the transaction goes smoothly and is executed. And just like the buying a home, the banks used by both the buyers and sellers take a cut of the sale.

American Banker reported in 2012; "buyers who disclosed their fees paid their advisors on average 0.49% of the deal value in 2003, while sellers paid 0.84%. In 2012 buyer rates had risen to 0.85%, and sellers' fees to 1.57%."  That means if just the three deals listed above go through the banks used could expect to collect nearly $3.75 billion -- 2.5% of the $150 billion -- for their time and effort.

Considering Dealogic reports that through the first fourth months of 2014, the 13 global deals valued at over $10 billion stood at nearly $320 billion (a 75% increase over 2013), this will mean huge things to the bottom lines of banks involved. 

And it turns out Bank of America may be the one bank who sees the biggest bit of growth.

Why Bank of America is set to win
So why should Bank of America shareholders be optimistic?

At a recent conference presentation the head of the Global Corporate and Investment Banking at Bank of America, Christian Meissner, revealed a rather stunning chart:

Source: Company Investor Relations.

As you can see, through May 20th, it had been tasked with assisting on more than half of the 52 mergers and acquisitions that were valued at over $5 billion. These 22 deals Bank of America assisted on is just one less than the previous four years combined.

In addition, being used on 52% of the deals shows how much it has improved from remarkably low 14% involvement in 2012.

This reality is even more enlightening when you consider -- as previously noted -- Bank of America actually topped Citigroup, Goldman Sachs, and all the other banks in total investment banking fees in 2013:

Source: Company Investor Relations.

You may notice the biggest reason for its lead came from its commanding positions in debt and equity capital markets deals (DCM and ECM), whereas it's mergers and acquisition (M&A) position left something to be desired.

Yet when you consider the significant improvement in its M&A efforts thus far in 2014, it turns out Bank of America could be poised for even more remarkable growth from its investment banking unit.

Bank of America had a tough run in the years during and following the financial crisis, but more and more evidence suggests its turnaround has not only begun, but is here to stay.

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Patrick Morris owns shares of Bank of America. The Motley Fool recommends Bank of America and Goldman Sachs. The Motley Fool owns shares of Bank of America and Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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